Carl the clothier owns a large garment factory on a remote island. Carl's factory is the only
Question:
Carl the clothier owns a large garment factory on a remote island. Carl's factory is the only source of employment for most of the islanders, and thus Carl acts as a monopsonist. The supply curve for garment workers is given by
L = 80w
and the marginal-expense-of-labor curve is given by
MEL = L/40
Where L is the number of workers hired and w is their hourly wage. Assume also that Carl's labor demand (marginal value product) curve is given by
L = 400 – 40MVPL
a. How many workers will Carl hire in order to maximize his profits, and what wage will he pay?
b. Assume now that the government implements a minimum-wage law covering all garment workers. How many workers will Carl now hire, and how much unemployment will there be if the minimum wage is set at $3 per hour? $3.33 per hour? $4.00 per hour?
c. Graph your results.
d. How does the imposition of a minimum wage under monopsony differ in results from a minimum wage imposed under perfect competition (assuming the minimum wage is above the market-determined wage)?
Step by Step Answer:
Intermediate Microeconomics and Its Application
ISBN: 978-0324599107
11th edition
Authors: walter nicholson, christopher snyder